Investor confidence in the financial markets is slowly improving, as a report showed equity mutual fund flows for June hit their highest level in more than a year.

Investors added an estimated $19.5 billion to equity funds last month, representing the largest monthly inflow since the nearly $29 billion inflow in March 2002, according to Lipper. Still, the buying was not overly optimistic as the types of funds chosen for investment reflected "broad underlying caution."

Among individual sectors, real estate captured more than half of the overall sector-fund total, signaling ongoing caution among fund shareholders. As a whole, sector funds notched a mere $0.6 billion in inflows, a modest increase from $0.4 billion in May. Value funds maintained their dominance over growth funds, having garnered more assets for the 29th month in the past 30 months. Growth funds netted $2.8 billion, marking only their fourth time in positive territory in the last 24 months.

"That’s hardly an overwhelming show of commitment or confidence considering the sharp rally from last year’s lows," said Don Cassidy, senior research analyst at Lipper.

Lipper said U.S. diversified equity funds ranked first in net inflows, totaling $9.9 billion, although the numbers are not that impressive considering the group makes up more than 60% of all equity-fund assets. Multi-cap funds, in particular, added $4.9 billion to their total asset base, suggesting that buyers lack the conviction to make a definitive choice.

Mixed equity funds remained an attractive choice among investors, tacking on $6.9 billion, up from $5.5 billion in March. Within that group, income funds led the pack, taking in $2.9 billion. Balanced funds took second place, amassing $2.2 billion. Convertible securities funds managed to capture $300 million in June despite fierce competition from new closed-end IPOs, which is more than 3% of their prior month-ending total assets.

As for fixed-income, bond funds declined for the fourth straight month, taking in $6.5 billion, a far cry from the $9 billion they amassed back in March. Funds focused on shorter-term bonds brought in a bulk of the new money.

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